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TWITTER ACQUISITION – Deal or No Deal

OVERVIEW

Elon Musk's probable acquisition of Twitter has been in the news since April this year. However, a lot has happened during the previous three months, from Twitter using the poison pill defense to resist Musk's hostile takeover of the social media network to Twitter suing Musk after he backed out of the $44 billion buyout offer.

Elon Musk and Twitter are preparing to go to court against each other.

WHAT HAPPENED?

The story begins with Tesla Tycoon Elon Musk’s abrupt interest in buying Twitter shares in January 2022. Cut to March 14th when his stake in Twitter reached 9.2%, making him the largest shareholder in the company, according to a securities filing. Musk disclosed his stake in Twitter on April 4th. Based on the price of Twitter shares at the close of the previous trading day, his stake was worth $2.89 billion. Twitter shares rose more than 27% after the announcement. The very next day Twitter announced that he will join the company’s board of directors, however, the offer was refused by Musk. Instead, he proposed to buy Twitter at $54.20 per share, valuing the company at about $43 billion. The offer amounted to a 38% premium above where the price stood a day before Musk's investment in Twitter became public.

On April 15th, Twitter adopted a poison pill provision to prevent the Musk acquisition. A poison pill allowed current stockholders to purchase additional shares at a discounted price, diluting the shares owned by Musk and making it more expensive for him to buy the company. In an announcement, Twitter said the poison pill will be triggered if any individual or entity acquires at least 15% of the company's shares. He then announced that he had garnered commitments of about $46.5 billion in financing for a possible Twitter acquisition. On April 25th Twitter accepted Musk's offer to acquire the company and valued the deal at $44 billion. Over three days, after Musk and Twitter reached a deal, he sold about $8.5 billion worth of Tesla stock to help finance the bid.

Musk secured more than $7 billion in financing for the deal, including commitments from Oracle co-founder Larry Ellison, venture capital firm Sequoia Capital and cryptocurrency exchange Binance.

On May 13th, Musk put the Twitter deal temporarily on hold after pointing out the number of spam-bot accounts on social media platforms. He quoted a Reuters report about a public filing from Twitter that said that less than 5 percent of Twitter’s active users represent spam or fake accounts. Skeptical of the finding, Musk said he wanted "details supporting the calculation that spam/fake accounts do indeed represent less than 5% of users."

A classic twist in the story came when on May 26th, Twitter shareholders brought a class-action lawsuit against Musk over alleged stock manipulation tied to the tumultuous acquisition process. At the time, Twitter's stock had fallen more than 12% since Musk announced his bid. Not backing down from his stance, on June 6th, Musk threatened to pull out of the deal if Twitter didn’t provide additional information about the prevalence of bots on its platform. In a statement, Twitter said it had been sharing information with Musk "by the terms of the merger agreement."

Finally, a month later, Musk moved to terminate his acquisition of Twitter, attributing it to the issue of fake accounts and claiming in a regulatory filing that Twitter was in "material breach" of several parts of the agreement by refusing to comply with Musk's requests for spambot account data and dismissing high-ranking employees. Twitter responded by suing Musk in Chancery Court in Delaware to force him to complete the deal. The trial is set to begin on October 17 in Delaware Chancery Court, where it's scheduled to last just five days.


WHAT NOW?

Musk’s lawyers have sent three letters to Twitter attempting to terminate his agreement to buy the company. This time, they cited Twitter’s multi-million-dollar severance payment to Zatko, saying it was a violation of the merger agreement and a reason to end the deal.

A few days later, Twitter responded the way it always does: your argument is invalid, Twitter hasn’t breached its side of the deal, and so you can’t either.

If permitted to abandon the deal, Musk may be forced to pay a $1 billion termination fee.

Until then, subscribe to our newsletter to read more about the financial side of the biggest businesses and financial scams.


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